Betting on Green

Friday, March 11, 2011

“ENVIRONMENTALISTS are fiddling while Rome burns,” says Vinod Khosla, founder of Khosla Ventures, a Silicon Valley venture-capital firm. “They get in the way with silly stuff like asking people to walk more, drive less. That is an increment of 1-2% change. We need 1,000% change if billions of people in China and India are to enjoy a Western, energy-rich lifestyle.” Forget today’s green technologies like electric cars, wind turbines, solar cells and smart grids, in other words. None meets what Mr Khosla calls the “Chindia price”-the price at which people in China and India will buy them without a subsidy. “Everything’s a toy until it reaches that point,” he says.

Mr Khosla has a different plan to save the planet. He is investing over $1 billion of his clients’ money in “black swans”-ideas with the potential for sudden jumps in technology that promise huge environmental benefits, easy scalability and rapid payback. The catch? Mr Khosla expects nine out of ten of his investments to fail.

“I am only interested in technologies that have a 90% chance of failure but, if they do succeed, would change the infrastructure of society in some radical way,” he says. Khosla Ventures’ portfolio reads like an eco-utopian wish-list: non-polluting nuclear reactors; diesel from microbes; carbon-negative cement; quantum batteries; and a system for extracting methane from coal while it is still underground.

“Any one of these things is improbable but, if you have enough shots on goal, then it’s very likely that something improbable will win,” he says. “Ten years ago, no analyst in the world would have predicted 650m cellphone subscribers in India but only 300m people with access to latrines and toilets. Even five years ago, no one would have predicted the way that Twitter took off. These are the black swan outliers.” Mr Khosla is keen to point out that he has caught a black swan before. In the mid-1990s, when working for Kleiner Perkins Caufield & Byers, a venture-capital firm, he invested $3m in Juniper Networks, a company making telecoms gear based on internet standards.

“At the time, every major telecommunications company told us that they would never switch to internet systems,” says Mr Khosla. Within just a few years, the internet boom had netted Kleiner Perkins a $7 billion return on its Juniper investment. Now Mr Khosla is gambling that venture capital can work similar magic in the field of clean technology. His approach is that of a pragmatic businessman rather than an eco-warrior. “I don’t view climate change as a moral thing. I view it as a risk, no different from nuclear proliferation, terrorism or national defence,” he says. “Business is used to buying insurance, and this is insurance that it is imperative we buy.”